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RE: INFOTERRA: Tough environmental standards yield unexpected profits for multinationals, stud

Thus, fiscal justification of what all of us know is right...

Paul E. Stoughton
Product Design Engineer
JAE Oregon Inc.
11555 Leveton Dr.
Tualatin OR  97062
(503) 692-1333 ext. 215
FAX (503) 692-6586

-----Original Message-----
From: Burt Hamner [mailto:bhamner@cleanerproduction.com]
Sent: Friday, September 01, 2000 9:29 AM
To: p2tech; one-l; ecdm; abracosa@mozcom.com
Subject: Fw: INFOTERRA: Tough environmental standards yield unexpected
profits for multinationals, stud

nice news about doing well by doing good!

----- Original Message -----
From: "Karen Claxon" <kclaxon@earthlink.net>
Sent: Thursday, August 31, 2000 5:48 PM
Subject: INFOTERRA: Tough environmental standards yield unexpected profits
for multinationals, stud

> 31 AUGUST 2000
> Contact: Barry List
> barry.list@informs.org
> 410-691-7852
> Institute for Operations Research and the Management Sciences
> Tough environmental standards yield unexpected profits for
> multinationals, study reports; non-polluters average $10.4 Billion
> higher market value
> Contrary to the belief that multinationals suffer from environmental
> regulation, large companies that adopt strict global environmental
> standards in developing countries are rewarded with higher stock market
> performance, according to a study published in a journal of the
> Institute for Operations Research and the Management Sciences
> "We have found a significant and positive relationship between the
> market value of a company and the level of environmental standard it
> uses," say the authors.
> Of the companies examined in the study, firms choosing to employ their
> own strict global environmental standard abroad are found to have an
> individual value of approximately $10.4 billion higher than those using
> less stringent U.S. standards, after controlling for the influence of
> physical assets, capital structure, and multinationality.
> The authors write, "This paper refutes the idea that adoption of global
> environmental standards by multinational enterprises constitutes a
> liability that depresses market value. On the contrary, the evidence
> from our analysis indicates that positive market valuation is associated
> with the adoption of a single stringent environmental standard around
> the world."
> The study also warns developing countries that using lax environmental
> regulations to attract foreign direct investment may bring them poorer
> quality, less competitive firms.
> "Do Corporate Global Environmental Standards Create or Destroy Market
> Value?" is by Glen Dowell, University of Notre Dame's College of
> Business; Stuart Hart, Kenan-Flagler Business School, University of
> North Carolina at Chapel Hill; and Bernard Yeung, NYU Stern School of
> Business. It appears in the current issue of Management Science, an
> INFORMS publication.
> Tying Environment to Market Value
> The researchers investigated two questions:
> 1. Are multinational enterprises more profitable when they surpass lax
> environmental standards in developing countries? Phrased differently: Is
> adhering to stricter environmental standards associated with higher
> market value - or does it represent nonproductive use of assets?
> 2. Do improvements in environmental standards actually lead to increased
> market value?
> Addressing the second question, the researchers were unable to determine
> if environmental measures undertaken in one year result in higher market
> value in a subsequent year.
> Large Firms Polluting Less
> The researchers examined a sample of 89 manufacturing and mining
> companies headquartered in the United States that are included in the
> Standard and Poor's 500 Index. Only multinational enterprises that had
> production operations in countries with GDP per capita below $8,000 were
> sampled.
> The researchers measured a company's market value using a measure called
> Tobin's q, an indicator of intangible value often used by economists.
> Tobin's q is defined as firm market value per dollar of replacement
> costs of tangible assets. The sample period was 1994-1997.
> Companies' compliance with environmental standards was derived from the
> Investor Responsibility Research Center's Corporate Environmental
> Profile for the year's 1994-1997. The profile indicates if a multination
> firm adheres only to local standards, applies American standards abroad,
> or uses a stringent internal environmental standard that exceeds any
> national standard.
> Surprisingly, the researchers found that defaulting to lax local
> environmental standards is by no means the most common practice. Nearly
> 60% of the companies observed in this sample adhere to a stringent
> internal standard, compared to less than 30% that only enforce
> developing countries' standards. The authors suggest several possible
> interpretations for their findings.
> Public relations: Interest groups and non-governmental organization
> expose unsound corporate environmental practices, raise consumer
> awareness, and put pressure on governments to discipline polluters even
> if the pollution is in overseas locations. To avoid censure, many
> managers maintain a high level of environmental practice in all company
> locations.
> Bottom line benefits: Choosing stringent environmental standards is more
> profitable than defaulting to lower or poorly enforced local
> environmental standards. The authors concede that the increased
> productivity observed in the study may be a result of using new
> technologies and equipment. Nevertheless, they suggest, firms that adopt
> high environmental standards are those that strive for eco-efficient
> production systems. The conscious policy to pursue technologies and
> processes that increase resource productivity of their operations has a
> positive result for the bottom line.
> Low performers race to the bottom: Economists sometimes interpret
> Tobin's q as a measure of firm "quality." In this instance, quality
> firms generate less pollution and strive to be the best in all their
> operations while lower-quality firms engage in what is described as a
> "race to the bottom" to gain short-term financial advantage.
> ###
> The Institute for Operations Research and the Management Sciences
> (INFORMSŪ) is an international scientific society with 10,000 members,
> including Nobel Prize laureates, dedicated to applying scientific
> methods to help improve decision-making, management, and operations.
> Members of INFORMS work in business, government, and academia. They are
> represented in fields as diverse as airlines, health care, law
> enforcement, the military, the stock market, and telecommunications.
> ------------------------------------------------------------------------
> --------
>  http://www.eurekalert.org/releases/ifor-tes083100.html
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